IIROC proposes cap on underwriting fees

The Investment Industry Regulatory Organization of Canada (IIROC) is proposing changes to its fee model to prevent situations where its fees eat up a large portion of dealer revenues in certain underwritings.

On Thursday, IIROC announced several proposed changes to its new integrated fee model, most significantly, the introduction of a cap on the underwriting levies collected by IIROC, so that it would capture no more than 5% of a dealer’s revenue from an offering.

The proposal comes in response to finding that in some cases, regulatory fees can represent more than half a dealer’s revenue from a particular offering.

In a notice outlining the proposed changes, IIROC says that its staff performed an analysis of the extent of the problem and possible responses. It found that “In a small number of cases the levy represents a significant portion (more than half) of [dealers’] revenue,” from certain offerings.

It examined a couple of possible ways to address the problem, and concluded that capping the levy at 5% of dealer revenue addresses the issue for the affected dealers, with the least impact on other firms, which will have to make up the shortfall through their own fees. It reports that a study of 2013 data found that a 5% cap would have reduced levy revenue by 1.47% or approximately $135,000.

“Within the range of levy caps considered … IIROC staff propose to implement a 5% levy cap because it provides the greatest relief to affected [dealers] with a minimal impact on other [dealers],” it says.

In addition to the proposed cap, IIROC is also proposing amendments to the fee model guidelines relating to underwriting levies; and, an amendment incorporating the administration fees it charges to dealers who request additional billing-related trading and other information.

IIROC invites comments on the proposed changes. Written comments should be delivered by June 9.